Keeping a logging business on a steady, productive, fiscally stable course today is more challenging than ever. Constrained markets, soaring operating costs, out-of-step rates, tight quotas, expanding regulations, slim or no profits and practitioners who don’t know their costs and are prone to work cheaply have combined to push a significant number of the nation’s loggers close to the edge.
One frustrated logger sums up his situation and that of so many of his peers: “Everything is going up and the price of wood is going down, and we are caught in the middle.”
With dim prospects that conditions will improve much this year, or perhaps even by 2013, more loggers likely will abandon the business or slip over the edge, further adding to a logging capacity shortfall that by most accounts is 25 to 30% below 2006-2007 levels.
This is the takeaway from Timber Harvesting’s 2011 Logging Business Survey, a comprehensive study initiated in February and completed in April. Just over 800 loggers from 39 states—21 with double digit participation—responded to the 44-question survey, which was conducted via email and TH’s web site. The 17% response was the best the magazine has achieved with similar past studies, the last occurring in 2006. There was no incentive offered to those invited to participate. A margin of error of +/- 5% should be taken into account.
Although broken down into four regions—Northeast, Lake States, West and South—for comparison purposes, figures presented herein are national except as noted. It should also be noted, too, that Southern logger participation was equal to the combined totals for loggers in the West, Lake States and Northeast. (According to U.S. Forest Service data, 60% of the nation’s total annual timber harvest occurs in the southern region.)
Ailing Financial Health
Not surprisingly, the survey shows that 2010 was a bad profit year for most loggers. Asked to estimate 2010 calendar/fiscal year pre-tax profits, 31% of participants contended they lost money and 20% contended they broke even. The percentage of Lake States loggers losing money/breaking even was slightly less than the national average. Regarding projected profits, 21% checked the 1-3% category; 12% projected 4-6%; 10% marked 7-10%; 2% selected 11-15%; and 4% predicted more than 15%.
Loggers were asked about their profits over the last five years. The results: decreased sharply, 30%; decreased moderately, 25%; decreased slightly, 10%; remained basically unchanged, 20%; increased slightly, 10%; increased moderately, 4%: increased sharply, 1%. The situation in the West was the worse for the period, with 44% of loggers reporting sharply decreased profits. Close to the national average were Lake States and Southern loggers. Only 20% of Northeastern loggers checked this category.
Several lean years have impacted the financial health of loggers as a group. Only 20% rated it as good, compared with 35% in TH’s 2006 survey, and 46% rated it as fair, practically the same as in 2006. Rating it poor were 22%; selecting very poor were 7%. Only 6% checked off the very good category.
Given ever-escalating operating costs, driven by the impact of fuel and compounded by the cost of machinery, parts and other supplies, not to mention limited and often volatile markets, insurance costs, regulations and downscaled production, 86% of participating loggers claimed their compensation is inadequate. There was little regional deviation in responses. In the 2006 survey 67% cited inadequate pay.
Unlike 2008, when many consuming companies came forth with fuel adjustments to help loggers offset rising fuel costs, few companies have initiated fuel adjustments in 2011, according to responding loggers. And even if they have done so, one logger described them as “too slow and too low.” He continued: “Many loggers desperate for work and cash flow are driving logging prices down. These levels are not sustainable. These same loggers are behind on or not making equipment payments at all. By leaving delinquent equipment on jobs, finance companies are injuring their better customers who pay their bills.”
The new survey asked loggers to indicate how much of an increase per ton they felt was required to sustain their businesses. Twenty-eight percent checked more than $5 per ton; 25% checked $3 per ton; 17% $2 per ton; 13% $5 per ton; and 4% $1 per ton. Just over 40% of loggers in both the West and Northeast called for the greatest increase while 36% of Lake States loggers did so. Only 22% of Southern loggers called for more than $5 per ton; 23% for $2 per ton and 28% for $3.
Quotas and market uncertainty have combined to create a start/stop, high-stress effect. Said one respondent: “Pay rates are fine as long as production is up, but it’s a fine line if production is down for just one day; it hurts.” Wrote another: “There is not enough return on investment for the time or trouble, but if it was all easy then everyone would be doing it.”
A whopping 95% of all loggers reported that operating a logging business today is more challenging than ever. Some succinct comments: 1) Risk to profit ratio is too small. For the financial risk and work load, the profit margin and wages should be higher. 2) Loggers are never paid for profit or equipment replacement. 3) Timber sales are smaller and poorer quality with little or no increase in productivity or remuneration. 4) Competition too fierce, so prices are lowered just to get work; no real competition out there.
Opting Out, Sifting Options
A few respondents reported they had sold out, filed for bankruptcy or parked their equipment, either temporarily or permanently. Wrote one sidelined logger from Minnesota: “The mills in Minnesota are breaking the loggers one at a time and do not seem to care one bit. Loggers are wearing their equipment out and will not be able to replace it. My equipment is almost new, with low hours, and it is parked until the economy improves. Several mills have closed and the electric plants burning biomass offered us $9 per ton for it, delivered 100 to 150 miles one way. What a joke! So we have parked a million dollar-plus business and are hauling crude oil in North Dakota with our two semi trucks to pay the bills. We are making money in the oil field and paying our logging equipment payments.”
A Florida logger wrote in late April: “This morning I came into my shop/office to make some major decisions. As I type, my employees are finishing a tract and will bring all my trucks and equipment to park around my shop. We cannot continue to work at a loss every day. As we end the fist quarter, my financials are the worst they have been in 26 years. The main reason for this, of course, is fuel. The majority of loggers are not getting any fuel adjustments or surcharges. The only loggers who seem to be getting some help are the ones who work directly for large landowners, who see the value of keeping their loggers healthy. Consuming mills do not care.
“Until the forest industry incorporates a plan to give fuel surcharges, you will continue to read articles about timber theft and truck accidents and see a large turnover of loggers and their equipment. Log trucks in Florida and Georgia are in the worst physical condition in years. So much for CSA 2010. Independent owner-operators seem to just keep on working due to the fact that there are no jobs and unemployment money is not available to them.”
Timber issues were mentioned repeatedly as significant obstacles. For years loggers have complained about sparse timber sales and timber mismanagement at the federal level; now there’s a growing chorus over the volume and quality of sales by private owners, trusts and investment groups. Low demand/prices are resulting in fewer grade log-dominated timber sales as landowners wait for more attractive prices to return. This puts additional pulpwood on the market, driving down prices, flooding markets, dampening production and reducing final harvests. This is particularly the case in the South, where tree planting has slowed significantly and where, in some places, first thinning tracts are becoming increasingly difficult to find. One side effect of this is often increased haul distances. In some instances, owners of pulpwood tracts are holding off on selling until the oversupply corrects itself.
But investment groups, needing cash, may have accelerated thinning activity and contributed to the pulpwood glut as they slowed grade-log sales. A few respondents pointed out that some consuming companies, now generally devoid of timberland, tend to escalate timber prices by bidding on open market tracts. Then there is the story about a timber broker/logger in southwest Alabama that reportedly bid $4 more per ton than the prevailing rate for REIT first thinning stumpage and expected a chipping contractor to take less to offset the stumpage cost.
Loggers were asked to rate how 12 elements impacted their business. Compensation was selected as having the greatest impact (55%); followed by insurance, 50%; trucking/related DOT regulations, 46%; weather, 43%; timber quality-availability-costs, 42%; load quotas, 37%; debt, 35%; equipment downtime, 30%; labor, 24%; environmental compliance, 24%; product separations-specs, 15%; and thinning vs. clear-cutting, 12%.
There were some slight regional differences among the heavy impact ranking as follows: Northeast—weather, insurance, compensation, timber issues and trucking; Lake States—weather, compensation, trucking, insurance and other; West—compensation, weather, insurance, timber issues and environmental compliance; South—compensation, insurance, trucking, load quotas and timber issues.
Labor, a major element nationally in the 2006 survey, was further down the list in 2011—most likely a reflection of the nation’s still-weak economy and high unemployment—while trucking and regulations moved up.
Many procurement agents in the wood fiber supply chain often play the “inefficient” card when loggers complain about inadequate pay, saying that loggers tend to have too much slack in their operations and otherwise are sloppy business managers. But when asked to rate their harvesting efficiency “considering circumstances within your control,” 76% of loggers rated it good (50%) or very good (26%). Only 20% rated it as fair.
Those fortunate enough to take efficiency to a lofty level often risk counter measures—lower prices, tight quotas, challenging tracts, long haul distances and slow truck turnaround among them—from consuming mills. One logger related… “any efficiency the logger generates is soon taken with lower delivered rates.”
Asked about the periodic way they track logging business performance, 40% checked weekly, 29% marked daily and 13% checked monthly. Comments: 1) Must track daily now! 2) Daily in the field, weekly at the office. 3) How do you track something so variable?
Loggers were asked to give “the number one issue adversely impacting their business right now.” Limited markets, weather, scaled back output, unrealistic compensation, poor profits and high operating costs (fuel and fuel fallout) were given repeatedly. Others they are dealing with: lack of available stumpage due to low delivered prices; green government politics; continued forest practices changes/pressures; worker’s comp; greed; too much recycling of paper; Obama; the wrecked housing market; cash flow; trucking; regulations; very long hauls; mill scaling practices; labor; equipment downtime; competition from desperate logging contractors; length of operating season; mill not honoring chip contracts; not being able to haul larger loads on interstates; truck turnaround time; debt; government spending; mills trying to get tracts harvested with old school mentality; too many thinning tracts and not enough clear-cutting; no plywood mills left; environmental compliance on new equipment; mills no longer as interested in maintaining strong relationships as they are in lowering costs; scalehouse a—holes; the economy; the G-P buyout of Alabama River; large investment landowners; Fish and Wildlife; my bank; educating the public that sound forestry is the best shot at helping sustain the environment as a whole; dealers (equipment) overcharging for parts and service; cost of new equipment; Indiana bat law; relocating to an area that is more receptive to CTL method of logging; cleaning equipment from job to job to keep from spreading invasive species; lack of commitment between loggers and markets; my health.
Path For Improvement
Loggers were asked to “list changes in prevailing industry practices that would help sustain your business.” Here are some responses:
1) Pay more money for quality work and eliminate jackleg loggers who screw up market conditions; 2) consistent contracts…that actually mean something; 3) encourage replanting; 4) lower machinery prices; 5) fuel surcharge and long-term contracts; 6) lower insurance requirements from mills; 7) lower worker’s comp rates for mechanized operations; 8.) mills to stop stealing wood from you through culling and overweight fines; 9) get rid of wood dealers; 10) mills to be as consistent as they want me to be; 11) open Forest Service and BLM lands for harvesting; 12) less regulations and restrictions; 13) major help with fuel prices to go to logging and trucking, not to a timber broker or landowner; 14) turn trucks in a timely manner at the mill; 15) better communications with mills; 16) 24-hour woodyard access; 17) regulation of TIMOs; 18) heavier load limits; 19) mills to realize what it costs to operate a timber harvesting business in real terms, not just on paper; 20) price guarantees tract-to-tract; 21) crooked, under-the-table business should be brought to a halt; 22) get government out of my way.
One logger made his case for defined weekly quotas: (“We need) better understanding from the mills on how quickly fuel prices can affect your margin. Some tracts are bid so strongly that in a two-week period your profit can be pumped into the fuel tanks. We can’t keep just one tract bought ahead; we have to keep multiple tracts bought for dry weather, wet weather, slow mill quota, high mill quota, mill shutdowns and so on. The landowner doesn’t care if the fuel price is up or if the price of hardwood is down; they want the price you agreed on six months ago. If you don’t cut it for that price you have lost a customer and made a bad name for yourself.”
From another: “Most loggers are now treated as a commodity that is bought, used and sold. We need to be treated as an asset that has value to build a stable future!”
Markets, or, more precisely, the lack of them, are another big factor in today’s extremely tight operating environment. Compared with five years ago, 77% of loggers indicated their grade log markets have decreased while 20% claim they have remained about the same. In the pulpwood-chips category, 47% said markets have decreased, 36% said they have remained about the same and 17% said they have increased.
What’s more, for the rest of this year and into 2013, 41% of loggers see no market and compensation improvement, 35% expect slight improvement, 11% see things going backward and 10% expect moderate improvement. Only 3% see things improving significantly.
For some loggers, a change in mill ownership, and often with it a change in supply chain philosophy and different policies and procedures, contribute to the bleeding. Other mills have switched to a different product mix, in some cases shutting the door to hardwood. Still others have been impacted by long-term supply agreements involving mills and Timberland Management Investment Trusts (TIMOs) and/or Real Estate Investment Trusts (REITs).
Here is a selection of related comments: 1) IP mill shut down—devastating!; 2) Domtar stopped taking hardwood pulpwood in Plymouth, NC; 3) chip mill changed hands and changed from hardwood to pine, now it’s 90 miles to nearest market; 4) last year pulpwood markets were excellent but now they’ve dropped to $20 a ton delivered; 5) lost Stone Container in Frenchtown, Mont.
One high profile logger in the South tells he sustained a hard one-two punch in that one of his primary consuming companies changed hands and his price plummeted; and a wood yard chipping contract with another company was canceled by a new mill manager who decided the company could do it itself. Another logger wrote: “G-P owns most of the mills surrounding our wood basket, so they control prices. I thought this was against the law.”
According to multiple media accounts, traditional wood products markets are slowly strengthening as demand for lumber, plywood and OSB creeps ahead and prices improve. Also, a few opportunities have developed for exports. For example, log exports and, to a degree, lumber exports, to China are helping keep some West Coast loggers and mills busy, and in the East, hardwood log and lumber exports are a plus. And along the East Coast, chip export activities are slowly gaining momentum. Eventually, some U.S. forest products companies could benefit from the rebuilding in the disaster zones of northeastern Japan.
Woody biomass demand has inched up but it remains spotty and the pay is generally low. The survey indicates the Southern region has the least amount of biomass activity among loggers, but a few new plants have just been completed and others are under construction there.
Asked about biomass market development over the last five years, 20% of U.S. loggers said at least one market has opened in their area; 15% said at least one plant has been announced and is under construction; 29% said at least one market has been announced only; and 36% said there have been no market announcements. Only 15% of loggers said they were biomass market suppliers, primarily chipping or grinding fuelwood, but 28% said they were thinking about getting into the biomass supply chain. Countering this were those (42%) not leaning in the biomass direction. Signaling caution about the wood energy movement, one logger said: “Remember what happened to the wigwam burner (at sawmills).”
Highest in the Western region (68%) and lowest in the Southern (58%), loggers said they have diversified their business efforts over the last five years; and 61% said this diversification has helped them stabilize their harvesting business base.
The established trend toward enlisting trucking subcontractors continues among loggers, with 48% either completely or partially doing so. But 37% continue to own trailers and vans and to operate trucks. In the South, it’s 44%, but in the West and Northeast, it’s just inside 30%.
Asked how they have made trucking more efficient in recent years, 33% said they had reduced net weight of trucks-trailers; taken advantage of higher state GVW allowances (30%); reduced haul distance (23%); hired better drivers (23%); increased the percentage of loaded miles (18%); added scales (17%); or other (16%). Almost a third of loggers—38% in the Southern region and inside 20% in the West and Lake States—acknowledged they sometimes exceeded legal weight limits.
Two weight increase options described in the survey found loggers about evenly divided. One would allow respective state weight limits to apply to all interstate highways; the other would establish a new national standard of 97,000 lbs. for all roads, including interstates, but with a required 6th axle. By 52% to 48%, loggers said they preferred the former over the latter. It should be noted that the 97,000 lb. option, being advocated by a consortium of groups, including FRA, under the AgHaul banner, would apply only to interstates, not all highways. The state law/interstate proposal is favored by the American Loggers Council.
The survey revealed several ways loggers have improved trucking in the last few years: 1) using a setout trailer system; 2) replacing older models with newer, more fuel-efficient tractors: 3) using fewer trucks; 4) using better routing communication; 5) adding tag and pusher axles; 6) keeping daily/weekly experience reports on each truck; 7) converting to larger capacity plantation trailers; 8.) assigning two drivers to one truck for day/night operation; 9) getting log purchaser to pay for hauling; 10) diversifying truck configurations; 11) maximizing daily logging to daily hauling and stockpiling for bad days.
One logger said he set up a tri-axle truck, equipped with a fuel-efficient engine, for 70,000 lb. GVW. “We are in a very mountainous area that makes tractor-trailer rigs very impractical, if not useless, on some tracts. Having this truck setup allows me to work these tracts when most others can’t, and at a premium, but fair, logging rate.”
Some loggers said they have worked diligently at improving trucking efficiency, but with limited success. And some are discouraged that consumers are showing little interest. Said one logger: “No one wanted to be obligated for any commitment due to economic uncertainties. Most mill reps are so stretched and taking on multiple roles that there just seems to be no interest in strategic planning. Simply put, no one is willing to make commitments.”
In grading equipment, loggers voted positively for the most part, giving it “good” or “very good” marks, respectively, for performance (62% and 28%); reliability (59% and 19%); design (56% and 30%); and operator comfort (53% and 37%). Northeast loggers poured on more praise with a “good” rating of 71, 65, 68 and 60% per respective category. However, they were in step with other regional counterparts when it came to fuel economy. In this category, only 41% of loggers voted “good” and 37% voted “fair.”
Here’s how loggers rated various factors in selecting equipment: brand—very important, 46%, somewhat important, 45%, less important, 7%; price—very important, 78%, somewhat important, 20%; less important, 2%; dealer location—very important, 47%, somewhat important, 10%, less important, 3%; dealer assistance-integrity-support—very important, 75%, somewhat important, 21%, less important, 3%; warranty—very important, 59%, somewhat important, 31%, less important, 8%; financing—very important, 52%; somewhat important, 28%, less important, 6%; other—very important, 52%, somewhat important, 17%; less important, 12%.
Other factors they say they consider: percentage of components made by U.S., Canadian and European manufacturers; operating costs; relationship with OEMs; resale value; uptime and productive capacity; personal experience; parts availability; payout versus life expectancy; quality and simplicity; experience of other loggers; and reputation of finance company.
Loggers were asked to list any new equipment they may purchase in 2011, but those who answered responded in both new and used terms. Skidders and loaders topped the list, followed by feller-bunchers and trucks, trailers and vans, chippers and/or grinders, forwarders, delimbers, harvesters, processors and dozers. A few responders couldn’t pass up a chance to express their frustration at this question: 1) None. Don’t want any Tier 4 engines; 2) Are you kidding?; 3) Won’t buy new as it is too expensive; 4) Maybe a skid steer to start all over again; 5) Hell no, I’m not buying anything.
(The Tier 4 engine referenced above is a requirement of the EPA and is being phased in over four years. Starting this year, all manufacturers will gradually equip higher horsepower off-road machines with the lower emissions engines, which, of course, will cost more. One Tigercat dealer tells that Tigercat’s so-equipped 724E feller-buncher, which begins shipping this summer, will cost $20,000 more than the same machine fitted with a Tier 3 engine.)
Regarding total business investment, a third of loggers claimed to have up to $500,000 in equipment and related assets; 19% between $1 million and $2 million; 14% between $750,000 and $1 million; 11% between $500,000 and $750,000; 8% between $2 and $3 million; 7% between $3 and $4 million; 5% more than $5 million; and 3% between $4 and $5 million.
Annual expenditures for repairs, parts, tires and other supplies can be considerable, with $44% spending up to $50,000; 19% up to $100,000; 14% $250,000-plus; 11% up to $150,000; 8% up to $200,000; and 4% up to $250,000.
Thirty-seven percent of loggers said they maintain a shop, 16% hire at least one technician; 17% maintain at least one dedicated service vehicle; 12% rely mostly on equipment dealers for assistance; and 19% rely mostly on independent technicians.
With insurance expenses a major concern, more loggers apparently are tightening up in this area. The survey showed that 45% of loggers have intensified their safety emphasis in the last couple of years. Steps included better screening of applicants, slowing down truck drivers, more drug testing, hiring a safety consultant and trimming employees. On the equipment side, 44% each increased deductibles and reduced coverage limits; 40% reduced the number of machines insured; and 28% bolstered fire prevention efforts.
As reflected in past TH logging business surveys, the nation’s logging ranks are more experienced than ever. The experience snapshot: 11-20 years, 27%; 21-30 and 31-40, both 24%; 1-10, 14%; and 41-plus, 12%. The age category is telling in that 51% of loggers are age 51 or older (32% 51-60 and 19% 60-plus). Other groups: 41-50, 25%; 31-40, 19% and 18-30, 5%. In the West, the statistics are more telling in that 65% are 51 or older and a mere 2% are 18-30.
Asked if younger people are replacing loggers in their area as loggers retire, quit or otherwise move on, an overwhelming 80% said no—the highest percentage coming from the South (84%) and the lowest from the Northeast (73%). Asked if they planned to ultimately transfer their logging business to a son or daughter, 54% said yes and 46% said no.
Loggers were asked to give their opinion of the Sustainable Forestry Initiative (SFI), Forest Stewardship Council (FSC) and other forest certification programs. The response: 43% said they are helping make the forest industry more professional and accountable and are worth the effort and expense; 23% said they are making little difference with the public and are not worth their effort and expense; and 34% said they are primarily a “smoke and mirrors” marketing tool for member companies.
Asked if SFI, in particular, should officially be endorsed by the American Loggers Council (ALC), 31% said yes, 23% said no, and 45% said they were not sure. For the record, ALC has endorsed the principles of the program but not the program per se. Its leadership continues to grapple with the issue of official endorsement.
Loggers who belong to a state or regional logging association seemed to be content with what their groups are doing. Forty-four percent said they were generally satisfied, 28% somewhat satisfied, 19% very satisfied, and 12% not satisfied.
Asked about their impression of the American Loggers Council, 23% said it is a strong, effective organization; 14% said it is not very strong and not very effective; 47% said the knew very little about it; 14% said they would like to know more; and 2% said they did not believe in a national loggers’ organization.
Loggers were also asked to give their opinion of the Wood Supply Research Institute (WSRI), an industry research group founded some 15 years ago and jointly funded by certain wood fiber consuming companies and logger organizations and whose work is most pronounced in the South. The results: 38% said they had heard of WSRI but didn’t know much about it; 29% said they had never heard of it; 16% said it has had no positive impact on their business; 4% said it has had a positive impact on their business; 12% said it should be continued; 2% said it should not be continued.
Regarding their plans for the next five years, half the loggers indicated they will likely stay in business and look for opportunities to expand or diversify; 29% said they will likely stay in business but not likely to expand or diversity; and 21% said they will likely get out of the business.
Despite the very tough going, a few respondents found some optimism: One logger’s words: “The market demand will correct itself. Once mills need wood, without any way to get it, the compensation will increase—if the market itself doesn’t die. Thankfully, many ‘middle men’ in our area have been eliminated in this market. Really, as bad as things are, it’s amazing to watch capitalism eliminate things and people in this industry that are not needed.”